The turmoil within the energy-trading sector is far from over, and many more assets may be for sale within the next few years. Several companies have bought reprieves, some at very high prices, but much of the relief is short-term. For example, The Williams Cos. has until next summer to come up with $1.2 billion or it may lose the assets it won from its purchase of Barrett Resources in 2001. Right now, a syndicate including Berkshire Hathaway has a lien on the assets-for which Williams paid more than $2.5 billion-in exchange for a $900-million short-term loan at the equivalent of a 35% annual interest rate. Should Williams lose the assets, will Berkshire Hathaway hold them and continue to operate them? Will it get into the E&P business? It is likely Berkshire would hold them until it can get the best price. It is not likely it will continue to own them beyond that, since the mutual fund likes to have investments that throw off predictable profits and are not as high-risk as exploration can be. According to Standard & Poor's debt-rating service, companies with merchant-power businesses have more than $90 billion in medium-term debt. A large portion of this debt was bank-financed, and bank coffers are already strained by debt owed by companies outside the energy sector, such as the telecommunications industry. "As the leading players in [the energy sector] struggle, the ability to refinance maturities will be one of the keys to their survival," S&P reports. While many of these merchant-power companies' assets are power plants and related properties, which are not usually interesting to those in the upstream energy business, the former's pressure on capital markets could continue to affect access by the latter. Why are home mortgage rates still higher than 5% when the federal funds rate is 1.25%? The demand for capital is greater right now than supply. As David Rockefeller, retired chairman of Chase, said at a recent book-signing (Memoirs) event in Houston, Alan Greenspan has affected the U.S. economy as much as he can with monetary policy. Now, the impetus for a faster economic recovery depends on fiscal policy. In the merchant-power business, which companies will have the most difficulty with refinancing their medium-term loans, as they come due, according to S&P? Calpine Corp., NRG Energy, PG&E, Teco Energy, AES Corp., Reliant Resources, Mirant Corp. and Edison Mission Energy. Companies with the greatest refinancing needs in 2003 and having E&P businesses include Dominion Resources ($2.65 billion), Duke Energy ($2.35 billion), El Paso Corp. ($2.52 billion), Williams ($2.18 billion) and Calpine ($2.0 billion). Dominion's notes that mature through 2006 are 10% bank-owned; Duke's, 27%; El Paso's, 17%; Williams', 32%; and Calpine's, 75%. Not all of the banks have disclosed their exposure to the merchant-energy industry. Among those that have, JP Morgan Chase's was $2.2 billion on September 30, and unfunded commitments were $4.0 billion; Toronto-Dominion, C$4.9 billion on July 31, 2002; Bank of Nova Scotia, C$3.9 billion; Canadian Imperial Bank of Commerce, C$2.5 billion; and Bank of Montreal, C$1.2 billion. S&P says Citigroup and Bank of America also have significant exposure. "JP Morgan Chase's exposure is 47% noninvestment grade, while Bank of Nova Scotia's is 58%, and Bank of Montreal's is 55%," S&P adds. And the percentages could grow: many of the debtors' ratings have negative outlooks. In senior financial editor Brian A. Toal's report "Green Pockets" in this issue, Robert H. Niehaus, chairman of Greenhill Capital Partners, says, "Whether it's an Enron, an Aquila or a Reliant Energy, there are a number of very large energy companies with overleveraged, multibillion-dollar balance sheets that are still going to have to sell assets." While power plants aren't fetching much on the market these days, companies with E&P assets may look to those as collateral for refis or sources of new cash. -Nissa Darbonne, Managing Editor